Research

Energy Institute at Haas

Research

EI @ Haas Working Paper WP-259R Abstract

Severin Borenstein, "Private Net Benefits of Residential Solar PV: The Role of Electricity Tariffs, Tax Incentives and Rebates" (Revised July 2015) (Revised version in the Journal of the Association of Environmental and Resource Economists, 4, September 2017) Full Paper

Abstract:
With dramatic declines in the cost of solar PV technology over the last 5
years, the electricity industry is in the midst of discussions about whether to use this
low-polluting renewable energy source in grid-scale generation or in distributed generation
(DG), mostly with rooftop solar PV. California has led the growth in DG solar in the U.S.
I use 2007 to early 2014 residential data from Pacific Gas & Electric – the utility with
largest number of residential solar customers in the U.S. – to examine the full range of
private incentives for installing residential solar, from the direct payments and tax credits
to the indirect incentives that result from the residential tariff design and the crediting
of solar production under “net energy metering.” I then study the income distribution of
solar adopters and how that has changed over time. I find the skew to wealthy households
adopting solar is still significant, but has lessened since 2011. Adoption continues to be
dominated by the heaviest electricity-consuming households, probably because the steeplytiered
tariff structure greatly increases the private value of solar to such customers while
reducing the incentive for consumers who are below median consumption. In fact, the
financial incentive for those who adopt solar over the sample period may have been due
nearly as much to California’s tiered tariff structure as to the 30% federal tax credit.
The California experience suggests that rate design can greatly influence the economic
incentives for residential solar adoption and which customers receive those benefits.